The National Council on the Aging (NCOA) published a report showing that reverse mortgages can help an estimated 13.2 million elderly homeowners pay for long-term care, allowing many to remain independent in their homes longer.
Of the 13.2 million eligible households, an estimated 9.8 million currently have an impairment that can make it hard to live at home, according to the study, titled Use Your Home to Stay at Home : Expanding the Use of Reverse Mortgages to Pay for Long Term Care.
In total, these households could access as much as $695 billion through reverse mortgages. For individuals, the extra cash could go a long way to help with family caregiving and other long-term care expenses.
For example, a borrower aged 75 years old with a home worth $100,000 could receive a reverse mortgage that could pay a family caregiver $500 a month for almost 12 years, $1,120 a month in adult day care services for almost five years, or $2,160 a month in home care—daily care for at least four hours—for 2.5 years.
“The study shows that reverse mortgages have significant potential to help many seniors pay for help at home or to make home modifications. It also points to the need for strong consumer safeguards and lower transaction costs if these loans are to appeal to the millions of older Americans who could potentially benefit,” said NCOA president and CEO James Firman.
NRMLA acted as an advisor to NCOA. The publication of the report is the first of a multi-phased project focused on educating policymakers, the healthcare industry, the aging community, and others about the potential use of reverse mortgages to help reform America's long-term care financing policies.
The report, funded by the Centers for Medicare and Medicaid Services and the Robert Wood Johnson Foundation, also shows how reverse mortgages can lessen financial pressure not only on individuals and families, but also on state Medicaid programs and the federal government.
NCOA projected annual Medicaid cost savings of $3.34 billion nationwide by 2010 assuming four percent of America's eligible seniors used a reverse mortgage to pay for healthcare services., or If one in four used a reverse mortgage, $4.86 billion would be saved.
"Many seniors and their families can benefit from effective ways to pay for the long term care services they need, in the setting they prefer," said Dr. Mark McClellan, administrator of the Centers for Medicare & Medicaid Services. "NCOA's report shows that reverse mortgages can provide real help in financing long term care needs."
However, there are several obstacles to their growth for this purpose. For example, the NCOA study shows that while two-thirds (67 percent) of older homeowners today have heard of a reverse mortgage, only 9 percent indicate that they are likely to use this financing option to pay for assistance at home.
Many worry that they risk impoverishment, or won’t be able to leave a legacy to their children if they tap home equity. The cost of these loans, and current Medicaid policies on how reverse mortgages affect eligibility for long-term care benefits, also appear to be barriers.
“We need expanded public education, and additional work to explore how to reduce the cost of tapping home equity, to strengthen consumer protections, and promote innovation,” said Barbara Stucki, Ph.D., project manager for NCOA’s Use Your Home to Stay at Home project. “Overcoming these obstacles will mean that reverse mortgages can play an important role in helping many older Americans pay for the supportive services they need to continue to live at home safely and comfortably.”
This article has been reprinted from the National Reverse Mortgage Lenders Association library of articles.
